Tokyo Tatemono Co.,Ltd. FY2025 Q3 Earnings Report

Financial Highlights

• Net Sales: ¥298.83B
• Operating Income: ¥50.60B
• Net Income: ¥36.47B
• EPS: ¥141.81

Income Statement

Balance Sheet

Profitability Ratios

Year-over-Year Comparison

Share Information

Dividend Information

Segment Information

Full Year Forecast

Disclaimer

This data was automatically extracted from XBRL files. Please refer to the original disclosure documents for accuracy.

AI Financial Analysis

Executive Summary

Verdict: FY2025 Q3 (cumulative) results show weaker earnings with resilient margins but rising pressure from non-operating items and leverage. Revenue was 2,988.33, with operating income of 506.01 (-17.9% YoY) and ordinary income of 414.53 (-22.4% YoY). Net income declined 17.0% YoY to 295.15, translating to a net margin of 9.9%. Operating margin this period is 16.9% (506.01/2,988.33), while ordinary margin is 13.9%; YoY basis-point changes cannot be calculated due to unreported prior-period revenue. Non-operating income was 50.36, led by dividend income of 37.59, but non-operating expenses of 132.62 (including interest expense of 68.61) more than offset, exerting a drag on ordinary income. Interest coverage remains adequate at 7.38x, yet leverage is elevated with D/E of 2.94x and total interest-bearing loans of at least 10,255.38 (short-term 616.45 + long-term 9,638.93), implying sensitivity to interest rate moves. Asset efficiency is soft with asset turnover of 0.134 and calculated ROE of 5.2%, while ROIC of 2.3% signals capital efficiency well below typical real estate cost of capital. Liquidity is strong with a current ratio of 389.8% and cash of 1,003.53 exceeding short-term loans of 616.45, mitigating near-term refinancing risk. The effective tax rate is 32.0%, broadly in line with Japan statutory norms, suggesting limited tax one-offs. Ordinary income fell faster than operating income, indicating increased financing and other non-operating burdens. Earnings quality cannot be validated due to unreported operating cash flow; OCF/NI and FCF are not computable. Dividend payout is estimated at 67.3%, above a conservative <60% benchmark, but coverage by FCF is unknown. Forward-looking, the combination of margin resilience, higher non-operating drag, and low ROIC suggests a need for disciplined capital recycling and leverage management; rate and cap-rate volatility remain key external variables.

Profitability Analysis

ROE decomposition (DuPont): ROE 5.2% = Net Profit Margin 9.9% × Asset Turnover 0.134 × Financial Leverage 3.94x. The weakest component is asset turnover at 0.134, reflecting a balance sheet heavy in development and investment properties relative to recognized revenue. Financial leverage is high at 3.94x, supporting ROE despite modest margins and low turnover. Net margin at 9.9% is reasonable for a developer with a sizable leasing contribution, but ordinary income was pressured by non-operating expenses (interest expense 68.61) outweighing non-operating income (50.36). The most notable change YoY is the decline in ordinary income (-22.4% YoY) vs operating income (-17.9%), indicating deterioration primarily in non-operating factors (financing costs and other expenses) rather than core operations; exact margin bps change cannot be quantified due to missing YoY revenue. Business drivers: likely fewer high-margin property sales completions and higher financing burden amid a larger balance sheet and rate environment. Sustainability: operating margins near 17% can hold if the mix of completed projects and leasing income remains stable; however, non-operating drag may persist if leverage stays high or interest rates rise. Watch for any SG&A growth outpacing revenue; SG&A reported at 366.56 but prior-period SG&A is unreported, so we cannot confirm operating leverage pressure.

Growth Assessment

Revenue sustainability is uncertain without YoY revenue data; current profitability depends on the timing of project deliveries and rental earnings. Operating income declined 17.9% YoY, suggesting fewer large completions or narrower development spreads; ordinary income fell 22.4% due to higher non-operating burdens. Net income decline of 17.0% aligns with this pressure but indicates tax effects were neutral. Non-operating income ratio is 17.1%, with substantial reliance on dividend income (37.59), implying some exposure to market/affiliate performance. Given ROIC at 2.3%, reinvestment returns are currently low; the outlook hinges on monetization of the development pipeline, rental NOI growth, and cost of debt. With interest coverage at 7.38x, the company has some cushion, but sustained earnings recovery likely requires improved asset turnover (project handovers) and/or disposals/recycling to lift ROIC. Near-term, execution on scheduled completions and leasing occupancy/lease-up will be the main drivers; macro sensitivities include construction cost inflation and cap-rate moves.

Financial Health

Liquidity: Current ratio is strong at 389.8% (current assets 7,843.36 vs current liabilities 2,012.04). Quick ratio presented equals the current ratio due to unreported inventory/receivables; we rely on the provided figure but note the limitation. Cash and deposits (1,003.53) exceed short-term loans (616.45), limiting near-term liquidity risk. Solvency: D/E is 2.94x, which is high and warrants caution; total liabilities are 16,643.56 against equity of 5,655.57. Long-term loans dominate at 9,638.93, indicating reliance on term financing. No explicit current ratio warning (it is well above 1.0), but leverage exceeds the 2.0x caution threshold. Maturity mismatch: Noncurrent liabilities (14,631.51) far exceed current liabilities, consistent with long-dated real estate financing; near-term roll-over risk appears moderate given liquidity headroom, but refinancing concentration risk may exist in future maturities (not disclosed). Off-balance sheet obligations: none reported in the provided data.

Cash Flow Quality

OCF/Net Income and FCF are unreported, so earnings quality cannot be validated quantitatively. With operating income of 506.01 and interest coverage at 7.38x, accrual earnings appear serviceable; however, development working capital swings (land acquisition, construction in progress) can materially distort OCF in this sector. We cannot assess FCF coverage for dividends or capex without OCF and capex data. No direct signs of working capital manipulation can be inferred due to missing breakdowns of inventories and receivables. Given the business model, expect lumpiness in OCF tied to project deliveries; monitoring contract liabilities, inventories, and advances from customers (not disclosed) is key.

Dividend Sustainability

The calculated payout ratio is 67.3%, above the <60% benchmark for conservative sustainability. With FCF unreported, we cannot confirm coverage. Given high leverage (D/E 2.94x) and low ROIC (2.3%), maintaining a high payout could constrain deleveraging and growth capex if OCF weakens. Policy outlook is unclear from the data; if management targets stable/increasing DPS, coverage will depend on the timing of completions and rental cash flow resilience. Until OCF visibility improves, dividend sustainability should be considered moderately stretched.

Risk Assessment

Business Risks:

• Property market cyclicality affecting development profits and leasing occupancy
• Construction cost inflation compressing development margins
• Project timing risk leading to lumpy revenue and earnings
• Cap-rate expansion risk reducing asset values and recycling gains
• Tenant concentration/vacancy risk in leasing portfolio

Financial Risks:

• High leverage with D/E of 2.94x increasing sensitivity to interest rate rises
• Refinancing risk on sizable long-term debt (9,638.93) amid changing credit conditions
• Non-operating burden (interest and other expenses) depressing ordinary income
• Low ROIC at 2.3% versus typical cost of capital
• Potential cash flow volatility due to working capital swings (inventories/advances not disclosed)

Key Concerns:

• Ordinary income fell faster than operating income (-22.4% vs -17.9% YoY), indicating rising non-operating drag
• Earnings quality cannot be validated (OCF and FCF unreported)
• Payout ratio at 67.3% without FCF coverage visibility
• Asset turnover of 0.134 signals slow capital recycling
• Interest coverage at 7.38x is adequate but could tighten if rates rise

Investment Implications

Key Takeaways:

• Margin resilience at the operating level (16.9% OPM) but ordinary income under pressure from non-operating costs
• High leverage (D/E 2.94x) alongside low ROIC (2.3%) points to subdued capital efficiency
• Strong near-term liquidity (current ratio ~3.9x; cash > short-term loans) mitigates immediate refinancing risk
• Dividend payout estimated at 67.3% may be aggressive given earnings decline and unverified FCF
• Future performance hinges on project delivery schedule, leasing NOI growth, and debt cost management

Metrics to Watch:

• Operating cash flow and free cash flow coverage of dividends
• Interest coverage and average borrowing cost/duration
• Contracted sales/backlog and scheduled project completions
• Leasing KPIs: occupancy, rent reversion, NOI growth
• Net debt to equity and asset recycling proceeds
• ROIC progression versus 7–8% target range

Relative Positioning: Within Japanese developers, Tokyo Tatemono appears more leveraged than conservative peers and currently exhibits lower capital efficiency (ROIC 2.3%). Liquidity is stronger than average on a current ratio basis, but reliance on debt and low asset turnover place it at a disadvantage versus peers with larger, more stable leasing bases and active asset recycling.

Disclaimer

This analysis was auto-generated by AI. Please note the following:

• No Guarantee of Accuracy: The accuracy and completeness of this analysis are not guaranteed. For accurate financial data, please refer to the original disclosure documents published on TDnet or other official sources
• Not Investment Advice: This analysis is for general informational purposes only and does not constitute investment advice under applicable securities laws. It is not a recommendation to buy or sell any specific securities
• At Your Own Risk: Investment decisions should be made at your own discretion and risk. We assume no liability for any losses incurred based on this analysis